<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
- -------------------------------------------------------------------------------
INVESCO DIVERSIFIED FUNDS, INC.
- --------------------------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
______________________________________________________________
(2) Aggregate number of securities to which transaction applies:
______________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
______________________________________________________________
(4) Proposed maximum aggregate value of transaction:
______________________________________________________________
(5) Total fee paid:
______________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
___________________________________
(2) Form, Schedule or Registration Statement No.:
___________________________________
(3) Filing Party:
___________________________________
(4) Date Filed:
___________________________________
<PAGE>
INVESCO DIVERSIFIED FUNDS, INC.
[LOGO OF INVESCO APPEARS HERE]
DECEMBER 26, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Dear INVESCO Diversified Funds Shareholder:
Enclosed is a Proxy Statement for the January 31, 1997 special meeting of
shareholders of INVESCO Diversified Funds, Inc.--INVESCO Small Company Fund
(the "Fund").
As you may have heard, INVESCO PLC ("INVESCO") has entered into an agreement
to merge with A I M Management Group Inc. ("AIM"), under which AIM will become
part of INVESCO. INVESCO is the ultimate parent company of INVESCO Funds
Group, Inc., the investment adviser to the Fund and INVESCO Management & Re-
search, Inc., the sub-adviser to the Fund.
As explained more fully in the attached Proxy Statement, at the time the
INVESCO/AIM merger takes effect, the Fund's present investment advisory and
sub-advisory contracts will terminate automatically, as a matter of law. Al-
though Fund shareholders are not being asked to approve the merger, they must
vote on the necessary new investment advisory and sub-advisory contracts. Ac-
cordingly, to provide continuity of investment advisory services to the Fund,
the Board of Directors is asking shareholders to approve the following propos-
als:
. Shareholders of the Fund will be asked to approve a new investment advi-
sory agreement and a new investment sub-advisory agreement for the Fund,
with the same parties and on terms substantially identical to the exist-
ing investment advisory and investment sub-advisory agreement.
In addition, shareholders are being asked to elect directors of the Fund and
to ratify the selection of Price Waterhouse LLP as the Fund's independent ac-
countants. The accompanying Proxy Statement provides additional detailed in-
formation on these proposals, the INVESCO/AIM merger and the Fund.
WE ARE REQUIRED BY LAW TO INFORM YOU AS TO CERTAIN DETAILS OF THE TRANSAC-
TION, EVEN THOUGH YOU ARE NOT VOTING TO APPROVE THE MERGER. WHAT IS MOST IM-
PORTANT FOR YOU AS A SHAREHOLDER OF THE FUND IS THAT APPROVAL OF THE PROPOSALS
LISTED ABOVE WILL IN NO WAY INCREASE THE ADVISORY FEES, SUB-ADVISORY FEES OR
EXPENSES OF THE FUND OR CHANGE THE LEVEL, NATURE OR QUALITY OF SERVICES YOU
RECEIVE. EACH OF THESE PROPOSALS HAS BEEN APPROVED BY THE BOARD OF DIRECTORS
OF THE FUND, WHICH RECOMMENDS THAT SHAREHOLDERS APPROVE THEM AS WELL.
The Board of Directors believes that these proposals are in the best inter-
ests of the shareholders. Therefore, we ask that you read the enclosed materi-
als and vote promptly. Should you have any questions, please feel free to call
our client services representatives at 1-800-646-8372. They will be happy to
answer any questions that you might have.
9711
<PAGE>
YOUR VOTE IS IMPORTANT. THE MATTERS WE ARE SUBMITTING FOR YOUR CONSIDERATION
ARE SIGNIFICANT TO THE FUND AND TO YOU AS A SHAREHOLDER. IF WE DO NOT RECEIVE
SUFFICIENT VOTES TO APPROVE THESE PROPOSALS, WE MAY HAVE TO SEND ADDITIONAL
MAILINGS OR CONDUCT TELEPHONE CANVASSING. THEREFORE, PLEASE TAKE THE TIME TO
READ THE PROXY STATEMENT AND CAST YOUR VOTE ON THE ENCLOSED PROXY CARD, AND
RETURN IT IN THE ENCLOSED PRE-ADDRESSED, POSTAGE-PAID ENVELOPE.
Sincerely,
/s/ Dan J. Hesser
Dan J. Hesser
President
INVESCO Diversified Funds, Inc.--
INVESCO Small Company Fund
2
<PAGE>
INVESCO DIVERSIFIED FUNDS, INC.
7800 EAST UNION AVENUE
DENVER, COLORADO 80237
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON JANUARY 31, 1997
Notice is hereby given that a special meeting of shareholders (the "Meet-
ing") of INVESCO Diversified Funds, Inc.--INVESCO Small Company Fund (the
"Fund") will be held at the Denver Marriott Southeast, 6363 East Hampden Ave-
nue, Denver, Colorado 80222 on Friday, January 31, 1997, at 10:00 a.m., Moun-
tain Standard Time, for the following purposes.
1.A. To approve or disapprove a new investment advisory agreement between
the Fund and INVESCO Funds Group, Inc. ("IFG"), such agreement to
take effect only if the proposed merger of A I M Management Group
Inc. into a wholly-owned U.S. subsidiary of INVESCO PLC is consum-
mated (the "Merger"). INVESCO PLC is the ultimate parent of IFG.
1.B. To approve or disapprove a new sub-advisory agreement between IFG and
INVESCO Management & Research, Inc., to take effect only if the
Merger is consummated.
2. To elect eleven directors of the Fund.
3. To ratify or reject the selection of Price Waterhouse LLP as indepen-
dent accountants for the Fund for the fiscal year ending July 31, 1997.
4. To transact such other business as may properly come before the Meeting
or any adjournment(s) thereof.
None of these proposals is expected to result in any change in the way the
Fund is managed, in the advisory or sub-advisory fees or in the services you
receive as a shareholder.
The board of directors of the Fund has fixed the close of business on Decem-
ber 9, 1996, as the record date for the determination of shareholders entitled
to notice of and to vote at the Meeting or any adjournment(s) thereof.
A complete list of shareholders of the Fund entitled to vote at the Meeting
will be available and open to the examination of any shareholder of the Fund
for any purpose germane to the Meeting during ordinary business hours after
December 15, 1996, at the offices of the Fund, 7800 East Union Avenue, Denver,
Colorado 80237.
You are cordially invited to attend the Meeting. Shareholders who do not ex-
pect to attend the Meeting in person are requested to complete, date and sign
the enclosed form of proxy and return it promptly in the enclosed envelope
that requires NO postage if mailed in the United States. The enclosed proxy is
being solicited on behalf of the board of directors of the Fund.
<PAGE>
IMPORTANT
Please mark, sign, date and return the enclosed proxy in the accompanying
envelope as soon as possible in order to ensure a full representation at the
Meeting.
The Meeting will have to be adjourned without conducting any business if
less than one-third of the eligible shares is represented, and the Fund will
have to continue to solicit votes until a quorum is obtained. The Meeting also
may be adjourned, if necessary, to continue to solicit votes if less than the
required shareholder vote has been obtained to elect the specified number of
directors and to approve Proposals 1.A., 1.B. and 3.
Your vote, then, could be critical in allowing the Fund to hold the Meeting
as scheduled. By marking, signing, and promptly returning the enclosed proxy,
you may eliminate the need for additional solicitation. Your cooperation is
appreciated.
By Order of the Board of Directors,
/s/ Glen A. Payne
Glen A. Payne
Secretary
Denver, Colorado
Dated: December 26, 1996
2
<PAGE>
INVESCO DIVERSIFIED FUNDS, INC.
DECEMBER 26, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INVESCO DIVERSIFIED FUNDS, INC.
7800 EAST UNION AVENUE
DENVER, COLORADO 80237
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 31, 1997
INTRODUCTION
The enclosed proxy is being solicited by the board of directors (the "Board"
or the "Directors") of INVESCO Diversified Funds, Inc.--INVESCO Small Company
Fund (the "Fund") for use in connection with the special meeting of sharehold-
ers of the Fund (the "Meeting") to be held at 10:00 a.m., Mountain Standard
Time, on Friday, January 31, 1997, at the Denver Marriott Southeast, 6363 East
Hampden Avenue, Denver, Colorado 80222, and at any adjournment(s) thereof for
the purposes set forth in the foregoing notice. THE FUND'S ANNUAL REPORT, IN-
CLUDING FINANCIAL STATEMENTS OF THE FUND FOR THE FISCAL YEAR ENDED JULY 31,
1996, IS AVAILABLE WITHOUT CHARGE UPON REQUEST FROM GLEN A. PAYNE, SECRETARY
OF THE FUND, AT P.O. BOX 173706, DENVER, COLORADO 80217-3706 (TELEPHONE NUMBER
1-800-646-8372). The approximate mailing date of proxies and this Proxy State-
ment is December 26, 1996.
The primary purpose of the Meeting is to allow shareholders to consider the
new investment advisory and sub-advisory agreements for the Fund. As explained
in more detail below, the existing advisory and sub-advisory agreements for
the Fund will terminate automatically, by operation of law, upon the consumma-
tion of the proposed merger (the "Merger") of A I M Management Group Inc.
("AIM") and a direct wholly-owned subsidiary of INVESCO PLC ("INVESCO").
Shareholders are not being asked to approve the Merger; rather, they are being
asked to continue the existing investment advisory relationships for the Fund
under new contracts which would take effect at the time of the Merger. Consum-
mation of the Merger is conditioned on, among other things, shareholder ap-
proval of the new investment advisory and sub-advisory contracts. The transac-
tions contemplated by the Merger and the terms of the new investment advisory
and sub-advisory agreements are discussed below.
OTHER THAN THEIR COMMENCEMENT AND EXPIRATION DATES, THE PROPOSED NEW ADVI-
SORY AND SUB-ADVISORY AGREEMENTS ARE IDENTICAL IN FORM AND TERMS TO THE PRES-
ENT AGREEMENTS.
Therefore:
(1) Shareholders of the Fund are being asked to approve a new investment
advisory agreement (the "Proposed Advisory Agreement") between the
Fund and its investment adviser, INVESCO Funds Group, Inc. (the "Ad-
viser" or "IFG"), to replace the existing agreement between the Fund
and the Adviser (the "Current Advisory Agreement"); and
<PAGE>
(2) Shareholders of the Fund are being asked to approve a new investment
sub-advisory agreement (the "Proposed Sub-Advisory Agreement") between
IFG and the Fund's sub-adviser, INVESCO Management & Research, Inc.
(the "Sub-Adviser" or "IMR"), to replace the existing sub-advisory
agreement between IFG and IMR (the "Current Sub-Advisory Agreement").
Elsewhere in this Proxy Statement, the Current Advisory Agreement and the
Current Sub-Advisory Agreement are together referred to as the "Current Agree-
ments." Similarly, the Proposed Advisory Agreement and the Proposed Sub-Advi-
sory Agreement are together referred to as the "Proposed Agreements."
The following factors should be considered by shareholders in determining
whether to approve the Proposed Agreements:
. The Proposed Advisory Agreement and the Proposed Sub-Advisory Agreement
were approved by the Directors, including the Independent Directors (as
defined below).
. There will be no change in the investment objectives or policies of the
Fund.
. There will be no increase in the fees payable to the Adviser or to the
Sub-Adviser as a result of the approval and implementation of the Pro-
posed Agreements.
. No significant changes are contemplated in the personnel of the Adviser
who are responsible for the overall supervision of the Fund or of the
Sub-Adviser who are responsible for managing the investments of the
Fund.
If the enclosed form of proxy is duly executed and returned in time to be
voted at the Meeting, and not subsequently revoked, all shares represented by
the proxy will be voted in accordance with the instructions marked thereon. If
no instructions are given, such shares will be voted FOR the nominees for di-
rector hereinafter listed and FOR Proposals 1.A., 1.B. and 3. One third of the
outstanding shares of the Fund entitled to vote, represented in person or by
proxy, will constitute a quorum at the Meeting.
Shares held by shareholders present in person or represented by proxy at the
Meeting will be counted both for the purpose of determining the presence of a
quorum and for calculating the votes cast on the issues before the Meeting. An
abstention by a shareholder, either by proxy or by vote in person at the Meet-
ing, has the same effect as a negative vote. Shares held by a broker or other
fiduciary as record owner for the account of the beneficial owner are counted
toward the required quorum if the beneficial owner has executed and timely de-
livered the necessary instructions for the broker to vote the shares or if the
broker has and exercises discretionary voting power. Where the broker or fidu-
ciary does not receive instructions from the beneficial owner and does not
have discretionary voting power as to one or more issues before the Meeting,
but grants a proxy for or votes such shares, they will be counted toward the
required quorum but will have the effect of a negative vote on any proposals
on which it does not vote.
In order to reduce the costs of preparing, printing and mailing the proxy
materials, the notices to shareholders having more than one account in the
Fund listed under the same social security number at a single address have
been combined. The proxy cards have been coded so that each shareholder's
votes will be counted for all such accounts.
Execution of the enclosed proxy card will not affect a shareholder's right
to attend the Meeting and vote in person, and a shareholder giving a proxy has
the power to revoke it (by written notice to the Fund at P.O. Box 173706, Den-
ver, Colorado 80217-3706, execution of a subsequent proxy card, or oral revo-
cation at the Meeting) at any time before it is exercised.
2
<PAGE>
Shareholders of the Fund of record at the close of business on December 9,
1996 (the "Record Date"), are entitled to vote at the Meeting, including any
adjournment(s) thereof, and are entitled to one vote for each share, and cor-
responding fractional votes for fractional shares, on each matter to be acted
upon at the Meeting. On the Record Date, 4,827,208 shares of the Fund's common
stock, $.01 par value per share were outstanding.
The following table sets forth, as of the Record Date, the beneficial owner-
ship of the Fund's issued and outstanding common stock by each 5% or greater
shareholder. The Directors and executive officers of the Fund did not own 1%
or more of the outstanding Fund shares as of the Record Date.
<TABLE>
<CAPTION>
Name and Address Amount of Percent of
of Beneficial Owner Beneficial Ownership(1) Common Stock
- ------------------- ----------------------- ------------
<S> <C> <C>
H. Al. Ward, Trustee Salvation Army 712,175.1360 13.194%
Board Designated
1424 Northeast Expressway Atlanta, GA
30329
H. Al. Ward, Trustee Salvation Army 566,877.4930 10.502%
Board Total 1424 Northeast Expressway
Atlanta, GA 30329
MAC & Co. 490,188.1190 9.081%
A/C 866-952
CTBF8669522 Mutual Funds Operations P.O.
Box 3198
Pittsburgh, PA 15230
</TABLE>
(1) Each beneficial owner named above shares investment power with respect
to the shares listed next to its respective row, but its customers re-
tain sole voting power.
In addition to the solicitations of proxies by use of the mail, proxies may
be solicited by officers of the Fund, and by officers and employees of IFG,
personally or by telephone or telegraph, without special compensation. In ad-
dition, Shareholder Communications Corporation ("SCC") will be retained to as-
sist in the solicitation of proxies.
As the meeting date approaches, certain shareholders whose votes the Fund
has not yet received may receive telephone calls from representatives of SCC
requesting that they authorize, by telephonic or electronically transmitted
instructions, SCC to execute proxy cards on their behalf. Telephone authoriza-
tions will be recorded in accordance with the procedures set forth below. The
Adviser believes that these procedures are reasonably designed to ensure that
the identity of the shareholder casting the vote is accurately determined and
that the voting instructions of the shareholder are accurately determined.
SCC has received an opinion of Maryland counsel that addresses the validity,
under the applicable laws of the State of Maryland, of authorization given
orally to execute a proxy. The opinion given by Maryland counsel concludes
that a Maryland court would find that there is no Maryland law or public pol-
icy against the acceptance of proxies signed by an orally-authorized agent,
provided it adheres to the procedures set forth below.
3
<PAGE>
In all cases where a telephonic proxy is solicited, the SCC representative
is required to ask the shareholder for such shareholder's full name, address,
social security or employer identification number, title (if the person giving
the proxy is authorized to act on behalf of an entity, such as a corporation),
and the number of shares owned, and to confirm that the shareholder has re-
ceived the Proxy Statement in the mail. If the information solicited agrees
with the information provided to SCC by the Fund, the SCC representative has
the responsibility to explain the process, read the proposals listed on the
proxy card, and ask for the shareholder's instructions on each proposal. Al-
though he or she is permitted to answer questions about the process, the SCC
representative is not permitted to recommend to the shareholder how to vote,
other than to read any recommendation set forth in the Proxy Statement. SCC
will record the shareholder's instructions on the card. Within 72 hours, SCC
will send the shareholder a letter or mailgram confirming the shareholder's
vote and asking the shareholder to call SCC immediately if the shareholder's
instructions are not correctly reflected in the confirmation.
If a shareholder wishes to participate in the Meeting, but does not wish to
give a proxy by telephone, such shareholder may still submit the proxy card
originally sent with the Proxy Statement or attend in person. Any proxy given
by a shareholder, whether in writing or by telephone, is revocable. A share-
holder may revoke the accompanying proxy or a proxy given telephonically at
any time prior to its use by filing with the Fund a written revocation or duly
executed proxy bearing a later date. In addition, any shareholder who attends
the Meeting in person may vote by ballot at the Meeting, thereby canceling any
proxy previously given.
All costs of printing and mailing proxy materials and the costs and expenses
of holding the Meeting and soliciting proxies, including any amount paid to
SCC, will be paid by INVESCO and not by the Fund or its shareholders.
The Board may seek one or more adjournments of the Meeting to solicit addi-
tional shareholders, if necessary, to obtain a quorum for the Meeting, or to
obtain the required shareholder vote to elect the number of specified direc-
tors and approve Proposals 1.A., 1.B. and 3. An adjournment would require the
affirmative vote of the holders of a majority of the shares present at the
Meeting (or an adjournment thereof) in person or by proxy and entitled to
vote. If adjournment is proposed in order to obtain the required shareholder
vote on a particular proposal, the persons named as proxies will vote in favor
of adjournment those shares which they are entitled to vote in favor of such
proposal and will vote against adjournment those shares which they are re-
quired to vote against such proposal. A shareholder vote may be taken on one
or more of the proposals discussed herein prior to any such adjournment if
sufficient votes have been received and it is otherwise appropriate.
PROPOSAL 1: A. APPROVAL OF THE PROPOSED ADVISORY AGREEMENT BETWEEN THE FUND
AND INVESCO FUNDS GROUP, INC.
B. APPROVAL OF THE PROPOSED SUB-ADVISORY AGREEMENT BETWEEN
INVESCO FUNDS GROUP, INC. AND INVESCO MANAGEMENT & RESEARCH,
INC.
BACKGROUND
IFG serves as investment adviser to the Fund pursuant to the Current Advi-
sory Agreement. The Current Advisory Agreement provides that the Adviser, upon
receipt of written approval of the Fund, is authorized to retain companies to
provide investment advisory services to the Fund. Accordingly, IFG has entered
into a sub-advisory agreement with IMR, pursuant to which IMR serves as sub-
adviser to, and is primarily responsible for, managing the investments of the
Fund. Both the Adviser and the Sub-Adviser are indirect, wholly-owned subsidi-
aries of INVESCO. INVESCO is a publicly traded holding company organized under
the laws of England
4
<PAGE>
in 1935. The ordinary shares of INVESCO, 25 pence nominal value per share (the
"Ordinary Shares"), are traded on the London Stock Exchange. INVESCO's subsid-
iaries provide investment advisory services throughout the world. As of Sep-
tember 30, 1996, the total assets advised by INVESCO and its subsidiaries were
approximately $91.1 billion.
AIM is a holding company that has been engaged in the financial services
business since 1976 and, together with its affiliates, advises or manages 38
investment company portfolios comprising the A I M Family of Funds(R). As of
October 31, 1996, the total assets of the registered investment company port-
folios advised or managed by AIM and its affiliates were approximately $57
billion.
On November 4, 1996, INVESCO and INVESCO Group Services, Inc. ("IGS") en-
tered into an agreement of merger (the "Merger Agreement") with AIM pursuant
to which IGS or another wholly-owned U.S. subsidiary of INVESCO ("INVESCO
Sub") will acquire all the issued and outstanding shares of AIM capital stock
for consideration valued on November 4, 1996 at approximately $1.6 billion,
plus the amount of AIM net income from September 1, 1996 through the date on
which the Merger is consummated (the "Closing Date"), minus dividends paid
during such period and subject to adjustments for certain balance sheet items
and transaction expenses. The consideration will include 290 million new Ordi-
nary Shares (including Ordinary Shares issuable in respect of vested and
unvested AIM options) of INVESCO valued on November 4, 1996 at approximately
$1.1 billion. The balance of the consideration will be paid in cash. Upon con-
summation of the Merger, the AIM shareholders will own approximately 45% of
INVESCO's total outstanding capital stock on a fully-diluted basis. Thereaf-
ter, INVESCO will change its name to "AMVESCO PLC" (the names of the Adviser
and the Sub- Adviser will not change).
The Closing Date is presently expected to occur on or about February 28,
1997, subject to the satisfaction of conditions to closing that include, among
other things: (a) INVESCO having consummated one or more financings and having
received net proceeds of not less than $500 million; (b) the respective aggre-
gate annualized asset management fees of INVESCO and AIM (based on assets un-
der management, excluding the effects of market movements), in respect of
which consents to the Merger have been obtained being equal to or greater than
87.5% of all such fees; (c) INVESCO and AIM having received certain consents
from regulators, lenders and/or other third parties; (d) AIM not having re-
ceived from the holder or holders of more than 2% of the outstanding AIM
shares notices that they intend to exercise dissenters' rights; (e) a Voting
Agreement, Standstill Agreement, Transfer Restriction Agreements, Transfer Ad-
ministration Agreement, Registration Rights Agreement, Indemnification Agree-
ment and employment agreements with approximately thirty AIM employees having
been executed and delivered; (f) AIM having received an opinion from its U.S.
counsel that the Merger will be treated as a tax-free reorganization; and (g)
shareholder resolutions to appoint to INVESCO's board of directors (the
"INVESCO Board") six AIM designees and a resolution of the INVESCO Board to
appoint the seventh AIM designee having been passed and not revoked.
The Merger Agreement may be terminated at any time prior to the Closing Date
by written notice by AIM or INVESCO to the other after June 1, 1997 or under
other circumstances set forth in the Merger Agreement. In certain circum-
stances occurring on or before September 30, 1997, a termination fee will be
payable by the party in respect of which such circumstances have occurred.
In connection with the Merger, the following agreements, each to be effec-
tive upon the closing of the Merger, have been or will be executed:
Voting Agreement. Certain AIM shareholders and their spouses, the cur-
rent directors of INVESCO and proposed directors of INVESCO (expected to
hold in the aggregate approximately 25% of the Ordinary Shares of INVESCO
outstanding immediately following consummation of the Merger) have agreed
5
<PAGE>
to vote as directors and as shareholders to ensure that: (a) the INVESCO
Board will have fifteen members, consisting of four executive directors
and three non-executive directors designated by INVESCO's current senior
management, four executive directors and three non-executive directors
designated by AIM's current senior management and a Chairman; (b) the ini-
tial Chairman will be Charles W. Brady (INVESCO's current Chairman) and
the initial Vice Chairman will be Charles T. Bauer (AIM's current Chair-
man); and (c) the parties will vote at any INVESCO shareholder meetings on
resolutions (other than those in respect of the election of directors)
supported by two-thirds of the INVESCO Board in the same proportion as
votes are cast by unaffiliated shareholders. The Voting Agreement will
terminate on the earlier of the fourth anniversary of the Closing Date or
the date on which a resolution proposed by an INVESCO-designated board
member is approved by the INVESCO Board despite being voted against by
each AIM-designated board member present at such INVESCO Board meeting.
Standstill Agreement and Transfer Restriction Agreements. Certain AIM
shareholders and their spouses and certain significant shareholders of
INVESCO have agreed, under certain circumstances for a maximum period of
five years, not to engage in a number of specified activities that might
result in a change of the ownership or control positions of INVESCO exist-
ing as of the Closing Date. AIM shareholders and INVESCO's current Chair-
man will be restricted in their ability to transfer their shares of
INVESCO for a period of up to five years.
If the conditions to the Merger are not met or waived, or if the Merger
Agreement is terminated, the Merger will not be consummated and the Current
Agreements will remain in effect. If the Proposed Agreements are approved and
the Merger is thereafter consummated, the Proposed Agreements will be executed
and become effective on the Closing Date. In the event that either of the Pro-
posed Agreements is not approved and the Merger is consummated, the Board will
determine what action to take, which ultimately will be subject to the ap-
proval of shareholders of the Fund.
Under the Merger Agreement, INVESCO and INVESCO Sub have agreed that they
will comply, and use all reasonable efforts to cause compliance on behalf of
their affiliates, with the provisions of Section 15(f) of the Investment Com-
pany Act of 1940, as amended (the "1940 Act"). Section 15(f) provides, in per-
tinent part, that an investment adviser of an investment company and its af-
filiates may receive any amount or benefit in connection with a sale of secu-
rities of, or a sale of any other interest in, such investment adviser that
results in an "assignment" of an investment advisory contract as long as two
conditions are met. First, no "unfair burden" may be imposed on the investment
company as a result of the Merger. The term "unfair burden," as defined in the
1940 Act, includes any arrangement during the two-year period after the trans-
action whereby the investment adviser (or predecessor or successor investment
adviser) or any interested person of any such adviser receives or is entitled
to receive any compensation directly or indirectly from the investment company
or its security holders (other than fees for bona fide investment advisory or
other services) or from any person in connection with the purchase or sale of
securities or other property to, from, or on behalf of the investment company
(other than fees for bona fide principal underwriting services). No such com-
pensation arrangements are contemplated in connection with the Merger.
The second condition is that, for a period of three years after the transac-
tion occurs, at least 75% of the members of the board of directors of the in-
vestment company advised by such adviser are not "interested persons" (as de-
fined in the 1940 Act) of the new or the old investment adviser. The Board you
are being asked to elect in Proposal No. 2 below does not meet this 75% re-
quirement. Nevertheless, as more fully described below under Proposal No. 2,
the composition of the Board, on or prior to the date the Merger is effected,
will comply with the 75% requirement.
6
<PAGE>
INVESCO has advised the Fund that the Merger is not expected to have a mate-
rial effect on the operations of the Fund or on its shareholders. No material
change in investment philosophy, policies or strategies is currently envi-
sioned. The Adviser and the Sub-Adviser will, following the Merger, continue
to be indirect wholly-owned subsidiaries of INVESCO. The Merger Agreement does
not, by its terms, contemplate any changes, other than changes in the ordinary
course of business, in the management or operation of the Adviser or the Sub-
Adviser relating to the Fund, the personnel managing the Fund, or other serv-
ices provided to or other business activities of the Fund. The Merger also is
not expected to result in material changes in the business, corporate struc-
ture or composition of the senior management or personnel of the Adviser or
the Sub-Adviser. Based on the foregoing, the Adviser does not anticipate that
the Merger will cause a reduction in the quality of services now being pro-
vided to the Fund, or have any adverse effect on the Adviser's or the Sub-Ad-
viser's ability to fulfill its respective obligations under the Proposed
Agreements or to operate its business in a manner consistent with its current
practices.
Each of the Current Agreements, as required by Section 15 of the 1940 Act,
provides for its automatic termination in the event of its assignment. Any
change of control of the Adviser and/or the Sub-Adviser is deemed to be an as-
signment. Because INVESCO Ordinary Shares constituting more than 25% of the
outstanding voting securities of INVESCO will be issued to the shareholders of
AIM, as a result of the Merger there may be deemed to be a change in control
of INVESCO. Such a change in control would cause an automatic termination of
the Current Advisory Agreement and the Current Sub-Advisory Agreement under
the 1940 Act.
Accordingly, in anticipation of the consummation of the Merger and in order
to ensure continuity of investment advisory services to the Fund by the Ad-
viser and IMR, a new investment advisory agreement between the Fund and IFG
and a new sub-advisory agreement between IFG and IMR are proposed to be ap-
proved by shareholders of the Fund.
The Board, including a majority of those Directors who are not "interested
persons" of the Fund as such term is defined under the 1940 Act (the "Indepen-
dent Directors"), has approved the Proposed Advisory Agreement and the Pro-
posed Sub-Advisory Agreement.
EVALUATION OF THE BOARD OF DIRECTORS
At regular or special meetings of the Independent Directors and of the Board
held on October 14, 15, 28, and 30 and on November 6, 1996, at each of which a
majority of the Independent Directors were in attendance, the Directors evalu-
ated the Proposed Advisory Agreement and the Proposed Sub-Advisory Agreement.
The Independent Directors had available to them the assistance of outside
counsel throughout the process of determining whether to approve the Proposed
Agreements. Prior to and during the meetings, the Independent Directors re-
quested and received all information they deemed necessary to enable them to
determine whether each of the Proposed Agreements is in the best interests of
the Fund and its shareholders. At the meetings, the Independent Directors re-
viewed materials furnished by Fund management and met with representatives of
INVESCO and with representatives of AIM. They noted that senior members of the
management team of the Adviser will continue to be responsible for managing
the day-to-day affairs of the Adviser and senior management members of the
Sub-Adviser will continue to be responsible for managing the affairs of that
company. In evaluating the effects of the Merger, the Independent Directors
viewed as significant the fact that the Adviser and the Sub-Adviser are ex-
pected to continue to provide to the Fund and its shareholders, after the
Merger, investment advisory services of the same nature and quality as before
the Merger. Also, the Independent Directors considered the possible effects of
the Merger on the Fund.
7
<PAGE>
The Board considered the nature, quality and extent of services provided and
expected to be provided by the Adviser to the Fund and by IMR to the Fund, as
well as the benefits derived by the Adviser and IMR. In addition, the Board
discussed and reviewed the terms and provisions of the Proposed Advisory
Agreement and the Proposed Sub-Advisory Agreement. The Board specifically
noted that, other than the dates of execution, effectiveness and termination,
the terms of each of the Proposed Agreements are the same, in all material re-
spects, as the terms of the corresponding Current Agreements. Specifically,
the Board noted that the fees and expenses payable under each of the Proposed
Agreements are identical to the fees and expenses presently in effect under
the corresponding Current Agreements.
The Board also took note of the terms of the Merger Agreement and the effect
of the addition of the substantial resources of AIM and its affiliated compa-
nies to the INVESCO group, including the reputation, experience, personnel,
resources, financial condition and performance of A I M Advisors, Inc. The
Board considered the statements made by representatives of INVESCO and AIM
that the capabilities of the Adviser and the Sub-Adviser would not be ad-
versely affected by the Merger and could be enhanced by the resources of AIM,
although there was no assurance of the Adviser or Sub-Adviser obtaining any
particular benefits.
Based upon the Directors' review and the evaluations of the materials they
received, and in consideration of all factors deemed relevant to them, the Di-
rectors determined that each of the Proposed Agreements is fair, reasonable
and in the best interests of the Fund and its shareholders. ACCORDINGLY, THE
BOARD, INCLUDING ALL OF THE INDEPENDENT DIRECTORS PRESENT AT THE APPLICABLE
MEETING, APPROVED EACH OF THE PROPOSED AGREEMENTS AND VOTED TO RECOMMEND THAT
ALL OF THE FUND'S SHAREHOLDERS VOTE TO APPROVE THE PROPOSED ADVISORY AGREEMENT
AND THE PROPOSED SUB-ADVISORY AGREEMENT.
THE PROPOSED ADVISORY AND SUB-ADVISORY AGREEMENT
If shareholders of the Fund approve the Proposed Advisory Agreement and the
Proposed Sub-Advisory Agreement, the Proposed Agreements will become effective
immediately after the closing of the Merger. This summary of the Proposed
Agreements is qualified in its entirety by reference to the form of such
agreements attached to this Proxy Statement as Exhibits A.1. and A.2.
Each of the Proposed Agreements will remain in effect, unless earlier termi-
nated, for an initial term expiring two years from the Closing Date. As previ-
ously discussed, the sole purpose of entering into the Proposed Advisory
Agreement and the Proposed Sub-Advisory Agreement is to enable IFG to continue
to serve as the investment adviser to the Fund and to enable IMR to continue
to serve as sub-adviser to the Fund, after termination of each of the Current
Agreements by virtue of the "assignment" of such agreements that could result
from the Merger. THE MATERIAL TERMS AND PROVISIONS OF EACH OF THE PROPOSED
AGREEMENTS, OTHER THAN THEIR RESPECTIVE EFFECTIVE AND TERMINATION DATES, ARE
THE SAME, IN ALL SUBSTANTIVE RESPECTS, AS THOSE OF THE CORRESPONDING CURRENT
AGREEMENTS, EACH OF WHICH IS SUMMARIZED BELOW.
THE CURRENT ADVISORY AGREEMENT
The Current Advisory Agreement, dated April 30, 1993, was unanimously ap-
proved on April 21, 1993, by a vote cast in person by a majority of the Direc-
tors, including a majority of the Independent Directors. On October 20, 1993,
such agreement was approved by IFG, as the then sole shareholder of the Fund,
for an initial term expiring on April 30, 1995. The continuation of the Cur-
rent Advisory Agreement until April 30, 1997, was approved by the Directors,
including a majority of the Independent Directors, at a meeting of the Direc-
tors held on April 30, 1996, called for the purpose of approving the Current
Advisory Agreement.
8
<PAGE>
The Current Advisory Agreement may be continued from year to year as long as
each such continuance is approved at least annually by the Board, or by a vote
of the holders of a majority of the then-outstanding voting securities (as de-
fined below under "Vote Required") of the Fund. Any such continuance also must
be approved by a majority of the Independent Directors of the Fund at a meet-
ing called for the purpose of voting on such continuance. Upon sixty (60)
days' written notice, the Current Advisory Agreement may be terminated at any
time without penalty by a majority of the then-outstanding voting securities
of the Fund, or by IFG. As discussed earlier, the Current Advisory Agreement
terminates automatically in the event of its "assignment" under the 1940 Act.
The Current Advisory Agreement provides that the Adviser shall (either di-
rectly or by delegation to a sub-adviser) maintain a continuous investment
program for the Fund that is consistent with the Fund's investment objectives
and policies as set forth in the Fund's registration statement (the "Registra-
tion Statement"), prospectus and statement of additional information (the
"Prospectus" and the "SAI") as in effect from time to time under the 1940 Act
and the Securities Act of 1933, as amended. In the performance of such duties,
the Adviser shall, among other things: (i) manage the investment and reinvest-
ment of the assets of the Fund; (ii) determine what securities are to be pur-
chased or sold for the Fund and place, or arrange for the placement of, all
orders for such transactions; (iii) furnish the Fund with investment analysis
and research, reviews of current economic conditions and trends and considera-
tions respecting long-range investment policies; (iv) make recommendations as
to the manner in which rights pertaining to the Fund's portfolio securities
should be exercised; (v) calculate the net asset value of the Fund as required
by the 1940 Act; (vi) furnish requisite office space, equipment and facilities
as may reasonably be requested by the Fund from time to time; and (vii) main-
tain the Fund's accounts and records and prepare all requisite corporate docu-
ments such as tax returns and reports to the Securities and Exchange Commis-
sion and Fund shareholders. Except to the extent assumed by IFG under the Cur-
rent Advisory Agreement or required by law, expenses incurred in connection
with the operations and organization of the Fund are borne by the Fund.
As full compensation for its advisory services to the Fund, IFG receives a
monthly fee. The fee is based upon a percentage of the Fund's average net as-
sets, determined daily. Specifically, the fee is calculated at the annual rate
of 0.75% of the Fund's average net assets.
For the fiscal year ended July 31, 1996, the Fund paid to IFG total advisory
fees of $409,030. The net assets, at July 31, 1996, of the Fund totaled
$46,693,185.
The Current Advisory Agreement provides that IFG shall not be liable for any
error of judgment, mistake of law, any loss arising out of any investment, or
for any other act or omission in the performance of its obligations under the
Current Advisory Agreement not involving willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations under such Agreement.
THE CURRENT SUB-ADVISORY AGREEMENT
The Current Sub-Advisory Agreement, dated October 31, 1993, was unanimously
approved on October 20, 1993 by a majority of the Directors, including a ma-
jority of the Independent Directors. On October 20, 1993, such agreement was
approved by IFG, as the then sole shareholder of the Fund, for an initial term
expiring on April 30, 1995. The continuation of the Current Sub-Advisory
Agreement until April 30, 1997, was approved by the Directors, including a ma-
jority of the Independent Directors, at a Meeting of the Directors held on
April 30, 1996, called for the purpose of approving the Current Sub-Advisory
Agreement.
9
<PAGE>
The Current Sub-Advisory Agreement may be terminated at any time without
penalty by IFG, the Board, a vote of a majority of the then-outstanding voting
securities of the Fund or by IMR. Termination by IFG or IMR requires sixty
(60) days' written notice to the other party and to the Fund.
The Current Sub-Advisory Agreement provides that IMR, as sub-adviser to the
Fund, subject to the supervision of IFG and the Board, shall maintain a con-
tinuous investment program for the Fund, that is consistent with the Fund's
investment objectives and policies as set forth in the Fund's Registration
Statement, Prospectus and SAI. In the performance of such duties, the Sub-Ad-
viser is obligated to provide the Fund with the same services as those set
forth above in clauses (i) through (iv) with respect to the services provided
to the Fund by the Adviser.
The Current Sub-Advisory Agreement provides that as compensation for its
services, IMR shall receive from IFG, at the end of each month, a fee based
upon the Fund's average net assets, determined daily. Specifically, the fee is
calculated at the annual rate of 0.375% of the Fund's average net assets. The
sub-advisory fees are paid by IFG, and not by the Fund or its shareholders.
INFORMATION CONCERNING ADVISER AND AFFILIATED COMPANIES
IFG, a Delaware corporation, serves as the Fund's investment adviser. IFG is
a wholly-owned subsidiary of INVESCO North American Holdings, Inc. ("INAH"),
1315 Peachtree Street, N.E., Atlanta, Georgia 30309. INAH is an indirect whol-
ly-owned subsidiary of INVESCO./1/ The corporate headquarters of INVESCO are
located at 11 Devonshire Square, London EC2M 4YR, England. IFG's offices are
located at 7800 East Union Avenue, Denver, Colorado 80237. IFG currently
serves as investment adviser of 14 open-end investment companies having aggre-
gate net assets of $13.4 billion. Exhibit B to this Proxy Statement includes a
list of investment companies, including the Fund, for which the Adviser or the
Sub-Adviser provide advisory services and which have similar investment objec-
tives to those of the Fund, and sets forth the net assets of and advisory fees
payable by such companies.
The principal executive officer and directors of IFG and their principal oc-
cupations are:
Dan J. Hesser, Chairman of the Board, President, Chief Executive Officer;
Brian N. Minturn, Executive Vice President and Director; Frank M. Bishop, Di-
rector, also, President and Chief Operating Officer of INVESCO, Inc.; Samuel
T. DeKinder, Director, also, Institutional Marketing Manager of INVESCO North
America; Hubert L. Harris, Jr., Director, also, President of INVESCO Services,
Inc., Director of INVESCO, Chief Executive Officer of INVESCO Individual Serv-
ices Group; Robert J. O'Connor, Director, also, Chief Executive Officer and
President of INVESCO Retirement Plan Services, a division of IFG; and R. Dal-
ton Sim, Director, also, President and Director of ITC.
The address of each of the foregoing officers and directors is 7800 East
Union Avenue, Denver, Colorado 80237, with the exception of the address of
Messrs. Bishop, DeKinder and Harris, which is 1315 Peachtree Street, N.E., At-
lanta, Georgia 30309 and Mr. O'Connor, whose address is 1355 Peachtree Street,
N.E., Atlanta, Georgia 30309.
IFG also acts as the Fund's Distributor. Pursuant to an Administrative Serv-
ices Agreement between the Fund and IFG, IFG also provides administrative
services to the Fund, including sub-accounting and recordkeeping services and
functions. During the fiscal year ended July 31, 1996, the Fund paid IFG total
compensation of $18,180 in payment of such services.
- ----------------
/1/The intermediary companies between INAH and INVESCO are as follows: INVESCO,
Inc., INVESCO Group Services, Inc. and INVESCO North American Group, Ltd.,
each of which is wholly-owned by its immediate parent.
10
<PAGE>
During the fiscal year ended July 31, 1996, the Fund paid IFG, which also
serves as the Fund's registrar, transfer agent and dividend disbursing agent,
total compensation of $47,778 for such services.
Once the Merger is consummated and the Proposed Agreements are approved, IFG
fully intends to continue to provide the same level, quality and nature of the
foregoing services to the Fund and its Fund as are currently being provided.
INFORMATION CONCERNING SUB-ADVISER
INVESCO Management & Research, Inc. ("IMR"), 101 Federal Street, Boston,
Massachusetts 02110, formerly Gardner and Preston Moss, Inc., is a wholly-
owned subsidiary of INAH. IFG, as investment adviser, has contracted with IMR
for investment advisory and research services on behalf of the Fund. IMR has
the primary responsibility for providing portfolio investment management serv-
ices to the Fund. IMR also acts as sub-adviser to the INVESCO Advisor
MultiFlex Fund and the INVESCO Multi-Asset Allocation Fund and offers invest-
ment services to U.S. institutions and wealthy individuals.
The principal executive officer and directors of IMR and their principal oc-
cupations are:
Frank J. Keeler, Chief Executive Officer, President, and Director; Frank M.
Bishop, Chairman of the Board, also, President and Chief Operating Officer of
INVESCO, Inc.; and William M. McCarthy, Senior Vice President and Director.
The address of Mr. Bishop is 1315 Peachtree Street, N.E., Atlanta, Georgia
30309. The address of Messrs. Keeler and McCarthy is 101 Federal Street, Bos-
ton, Massachusetts 02110.
VOTE REQUIRED
As provided under the 1940 Act, approval of the Proposed Advisory Agreement
and the Proposed Sub-Advisory Agreement will require the affirmative vote of a
majority of the outstanding shares of the Fund. Such a majority is defined in
the 1940 Act as the lesser of: (a) 67% or more of the shares present at such
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present or represented by proxy, or (b) more than 50% of the total out-
standing shares of the Fund.
THE DIRECTORS, INCLUDING A MAJORITY OF THE INDEPENDENT DIRECTORS, RECOMMEND
THAT ALL OF THE FUND'S SHAREHOLDERS VOTE TO APPROVE THE PROPOSED ADVISORY
AGREEMENT BETWEEN THE FUND AND IFG AND VOTE TO APPROVE THE PROPOSED SUB-ADVI-
SORY AGREEMENT BETWEEN IFG AND IMR.
PROPOSAL 2: ELECTION OF DIRECTORS OF THE FUND
The Fund currently has eleven Directors. Vacancies on the Board are gener-
ally filled by appointment by the remaining Directors. However, the 1940 Act
provides that vacancies may not be filled by Directors unless thereafter at
least two-thirds of the Directors shall have been elected by shareholders. To
enable the requirement to be met in the future without the necessity of call-
ing additional shareholder meetings, shareholders are being asked at this
Meeting to elect the current eleven Directors to hold office until the next
meeting of shareholders or until their successors are elected and qualified.
Under the provisions of the Fund's by-laws, as permitted by Maryland law, the
Fund does not anticipate holding annual shareholder meetings. Thus, the Direc-
tors will be elected for indefinite terms.
11
<PAGE>
Seven of the current Directors are "Independent Directors," i.e., Directors
who are not "interested persons" of the Fund, as that term is defined in the
1940 Act. The nominees for election as Directors have been proposed by the Di-
rectors now serving or, in the case of nominees for positions as Independent
Directors, by the Independent Directors now serving. It is possible that the
Board will consider the election of one additional Independent Director at its
February 1997 meeting.
The persons named as attorneys-in-fact in the enclosed proxy have advised
the Fund that unless a proxy instructs them to withhold authority to vote for
all listed nominees or for any individual nominee, they will vote all validly
executed proxies for the election of the nominees named below. All of the nom-
inees have consented to being named in this Proxy Statement and to serve, if
elected, and no circumstances now known will prevent any of the nominees from
serving. If any nominee should be unable or unwilling to serve, the proxy will
be voted for a substitute nominee proposed by the present Directors or in the
case of an Independent Director nominee, by the Independent Directors.
Set forth below is information concerning the nominees for Directors to be
elected at this Meeting:
<TABLE>
<CAPTION>
NUMBER OF
FUND SHARES
POSITION, IF ANY, WITH THE FUND, DIRECTOR OR BENEFICIALLY
PRINCIPAL OCCUPATION AND EXECUTIVE OFFICER OWNED DIRECTLY OR
BUSINESS EXPERIENCE OF THE INDIRECTLY ON
NAME AND AGE (DURING PAST FIVE YEARS) FUND SINCE DEC. 9, 1996(1)
------------ -------------------------------- ----------------- -----------------
<S> <C> <C> <C>
Charles W. Chairman of the Board of the Fund. 1993 None
Brady*(3),(5),(6) Chief Executive Officer and Director
Age 61 of INVESCO and of various subsidiaries
thereof; Chairman of the Board of
INVESCO Advisor Funds, Inc. ("Advisor
Funds"), INVESCO Treasurer's Series
Trust ("Treasurer's Series Trust") and
The Global Health Sciences Fund
("GHSF").
Dan J. Hesser*(3),(5) President, Chief Executive Officer and 1993 None
Age 56 Director of the Fund. Chairman of the
Board, President and Chief Executive
Officer of IFG; Director of ITC;
Trustee of GHSF; Chairman and Director
of Britannia North American Holdings,
Inc.
Fred A. Vice Chairman of the Board of the 1993 None
Deering(2),(3),(5) Fund. Vice Chairman of Advisor Funds
Age 68 and Treasurer's Series Trust; Trustee
of GHSF; formerly, Chairman of the Ex-
ecutive Committee and Chairman of the
Board of Security Life of Denver In-
surance Company, Denver, Colorado; Di-
rector of ING American Holding Company
and ING Life Insurance Company of New
York.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
FUND SHARES
POSITION, IF ANY, WITH THE FUND, DIRECTOR OR BENEFICIALLY
PRINCIPAL OCCUPATION AND EXECUTIVE OFFICER OWNED DIRECTLY OR
BUSINESS EXPERIENCE OF THE INDIRECTLY ON
NAME AND AGE (DURING PAST FIVE YEARS) FUND SINCE DEC. 9, 1996(1)
------------ -------------------------------- ----------------- -----------------
<S> <C> <C> <C>
Dr. Victor L. An- Director of the Fund. Professor Emeri- 1993 None
drews(4),(6) tus, Chairman Emeritus and Chairman of
Age 66 the CFO Roundtable of the Department
of Finance of Georgia State Universi-
ty, Atlanta, Georgia; President, An-
drews Financial Associates, Inc. (con-
sulting firm); formerly, member of the
faculties of the Harvard Business
School and the Sloan School of Manage-
ment of MIT. Dr. Andrews is also a Di-
rector of The Southeastern Thrift and
Bank Fund, Inc., Sheffield Total Re-
turn Fund and Sheffield Intermediate-
Term Bond Fund.
Bob R. Baker(3),(4),(5) Director of the Fund. President and 1993 None
Age 60 Chief Executive Officer of AMC Cancer
Research Center, Denver, Colorado,
since January 1989.
Lawrence H. Bud- Director of the Fund. Trust Consul- 1993 None
ner(2),(6) tant; prior to June 30, 1987, Senior
Age 66 Vice President and Senior Trust Offi-
cer of InterFirst Bank, Dallas, Texas.
Daniel D. Director of the Fund. Financial Con- 1993 None
Chabris(2),(3),(5) sultant; Assistant Treasurer of Colt
Age 73 Industries, Inc., New York, New York,
from 1966 to 1988.
A. D. Frazier, Jr.*(4) Director of the Fund. Executive Vice 1995 None
Age 52 President of INVESCO; from 1991 to
1996, Senior Executive Vice President
and Chief Operating Officer of the At-
lanta Committee for the Olympic Games;
Trustee of GHSF; Director of Charter
Medical Corp.
Hubert L. Harris, Jr.* Director of the Fund. Chairman of the 1996 419.6000
Age 53 Board and Chief Executive Officer of
INVESCO Services, Inc.; Chief Execu-
tive Officer of INVESCO Individual
Services Group; Director of INVESCO;
President, Chief Executive Officer and
Chief Financial Officer of Advisor
Funds; President and Trustee of GHSF;
President of the Georgia Institute of
Technology Alumni Association and mem-
ber of the Alumni Board of Trustees
thereof.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
FUND SHARES
POSITION, IF ANY, WITH THE FUND, DIRECTOR OR BENEFICIALLY
PRINCIPAL OCCUPATION AND EXECUTIVE OFFICER OWNED DIRECTLY OR
BUSINESS EXPERIENCE OF THE INDIRECTLY ON
NAME AND AGE (DURING PAST FIVE YEARS) FUND SINCE DEC. 9, 1996(1)
------------ -------------------------------- ----------------- -----------------
<S> <C> <C> <C>
Kenneth T. Director of the Fund. Formerly, Chair- 1993 None
King(3),(4),(5),(6) man of the Board of The Capitol Life
Age 71 Insurance Company, Providence Washing-
ton Insurance Company, and Director of
numerous subsidiaries thereof in the
U.S.; formerly, Chairman of the Board
of The Providence Capitol Companies in
the United Kingdom and in Guernsey;
Chairman of the Board of the Symbion
Corporation (a high technology compa-
ny) until 1987.
John W. McIntyre(2) Director of the Fund. Retired; former- 1995 None
Age 66 ly, Vice Chairman of the Board of Di-
rectors of The Citizens and Southern
Corporation and Chairman of the Board
and Chief Executive Officer of The
Citizens and Southern Georgia Corp.
and Citizens and Southern National
Bank; Director of Golden Poultry Co.,
Inc.; Trustee of GHSF and of Gables
Residential Trust.
</TABLE>
(1) As interpreted by the Securities and Exchange Commission, a security is
beneficially owned by a person if that person has or shares voting power
or investment power with respect to the security. The persons listed
have partial or complete voting and investment power with respect to
their respective Fund shares.
(2) Member of Audit Committee.
(3) Member of Executive Committee.
(4) Member of Management Liaison Committee.
(5) Member of Valuation Committee.
(6) Member of Compensation Committee.
* Because of his affiliation with INVESCO, with the Fund's investment ad-
viser or with companies affiliated with INVESCO, this individual is
deemed to be an "interested person" of the Fund as that term is defined
in the 1940 Act.
As discussed above under Proposal No. 1, the terms of the Merger Agreement
require that immediately after the Merger is effected, 75% of the members of
the Board not be "interested persons" of the Fund, as that term is defined in
the 1940 Act. As noted above, seven of the current Directors (63%) are Inde-
pendent Directors. Thus, the composition of the Board you are being asked to
elect would not meet the 75% requirement. Therefore, prior to the closing of
the Merger, it is the current intention that a sufficient number of "interest-
ed" Directors would resign from the Board so that the Board would be in com-
pliance with the 75% requirement at the time the Merger is effected.
The committees of the Board are the compensation committee, executive com-
mittee, audit committee, management liaison committee and valuation committee.
The Fund does not have a nominating committee. During
14
<PAGE>
the intervals between the meetings of the Board, and except for certain powers
which, under applicable law and/or the Fund's by-laws, may only be exercised
by the full Board, the executive committee may exercise all powers and author-
ity of the Board in the management of Fund business. All decisions are subse-
quently submitted for ratification by the full Board. The audit committee,
consisting of four Independent Directors, meets periodically with the Fund's
independent accountants and the executive officers of the Fund. This committee
reviews the accounting principles being applied by the Fund in financial re-
porting, the scope and adequacy of internal controls, the responsibilities and
fees of the independent accountants and other matters. All of the recommenda-
tions of the audit committee are reported to the full Board. During the past
fiscal year, the Board met three times, the audit committee met four times,
the management liaison committee met three times and the compensation commit-
tee met once. During the Fund's last fiscal year, each director nominee at-
tended 75% or more of the aggregate of the Board meetings and meetings of the
committees of the Board on which he served.
The Fund pays its Independent Directors the directors' fees and board vice
chairman and committee chairmen fees described below and reimburses Indepen-
dent Directors for travel expenses incurred in attending meetings. Messrs.
Brady, Harris, Hesser and, as of November 1, 1996, Frazier, as "interested
persons" of the Fund and of other funds in the INVESCO Fund Complex,/2/ re-
ceive compensation and are reimbursed for travel expenses incurred in attend-
ing meetings as officers or employees of IFG or of its affiliated companies,
but do not receive any directors' fees or other compensation from the Company
or from other companies in the INVESCO Fund Complex for their services as Di-
rectors.
The following table sets forth, for the fiscal year ended July 31, 1996: the
compensation paid by the Fund to its seven current Independent Directors (and
to Mr. Frazier, for the period before he became an employee of INVESCO on No-
vember 1, 1996) for services rendered in their capacities as Directors of the
Fund; the benefits accrued as Fund expenses with respect to the Defined Bene-
fit Deferred Compensation Plan discussed below; and the estimated annual bene-
fits to be received by these Directors upon retirement as a result of their
service to the Fund. In addition, the table sets forth the total compensation
paid by all of the mutual funds in the INVESCO Fund Complex to these Directors
for services rendered in their capacities as directors or trustees during the
year ended December 31, 1995. As of December 31, 1995, there were 48 funds in
the INVESCO Fund Complex.
- ----------------
/2/ The following investment companies comprise the INVESCO Fund Complex:
INVESCO Diversified Funds, Inc., INVESCO Dynamics Fund, Inc., INVESCO Emerg-
ing Opportunity Funds, Inc., INVESCO Growth Fund, Inc., INVESCO Income
Funds, Inc., INVESCO Industrial Income Fund, Inc., INVESCO International
Funds, Inc., INVESCO Money Market Funds, Inc., INVESCO Multiple Asset Funds,
Inc., INVESCO Specialty Funds, Inc., INVESCO Strategic Portfolios, Inc.,
INVESCO Tax-Free Income Funds, Inc., INVESCO Value Trust, INVESCO Variable
Investment Funds, Inc. (collectively, the "IFG-Distributed Funds"); INVESCO
Advisor Funds, Inc.; The Global Health Sciences Fund; and INVESCO
Treasurer's Series Trust.
15
<PAGE>
<TABLE>
<CAPTION>
PENSION/ TOTAL COMPENSATION
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL FROM INVESCO
COMPENSATION FROM ACCRUED AS PART OF BENEFITS UPON FUND COMPLEX PAID
NAME AND POSITION THE FUND(1) FUND EXPENSES(2) RETIREMENT(3) TO DIRECTORS(1)
----------------- ----------------- ------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Fred A. Deering, 1,131 76 64 87,350
Vice Chairman of
the Board
Victor L. Andrews, 1,111 67 70 68,000
Director
Bob R. Baker, 1,117 69 94 73,000
Director
Lawrence H. Budner, 1,103 72 70 68,350
Director
Daniel D. Chabris, 1,119 82 50 73,350
Director
A. D. Frazier, Jr., 1,088 0 0 63,500
Director(4)
Kenneth T. King, 1,111 79 58 70,000
Director
John W. McIntyre, 1,098 0 0 67,850
Director(4)
------ ------ --- -------
TOTAL 8,878 445 406 571,400
====== ====== === =======
% OF NET ASSETS 0.0190%(5) 0.0010%(5) 0.0043%(6)
</TABLE>
(1) The vice chairman of the Board, the chairmen of the audit, management
liaison and compensation committees, and the members of the audit, man-
agement liaison, executive and valuation committees receive compensation
for serving in such capacities in addition to the compensation paid to
all Independent Directors.
(2) Represents benefits accrued with respect to the Defined Benefit Deferred
Compensation Plan discussed below, and not compensation deferred at the
election of the Directors.
(3) These amounts represent the Fund's share of the estimated annual bene-
fits payable by the INVESCO Fund Complex (excluding GHSF, which does not
participate in any retirement plan) upon the Directors' retirement, cal-
culated using the current method of allocating director compensation
among the funds in the INVESCO Fund Complex. These estimated benefits
assume retirement at age 72 and that the basic retainer payable to the
Directors will be adjusted periodically for inflation, for increases in
the number of funds in the INVESCO Fund Complex, and for other reasons
during the period in which retirement benefits are accrued on behalf of
the respective Directors. This results in lower estimated benefits for
Directors who are closer to retirement and higher estimated benefits for
Directors who are further from retirement. With the exception of Messrs.
Frazier and McIntyre, each of these Directors has served as a
director/trustee of one or more of the funds in the INVESCO Fund Complex
for the minimum five-year period required to be eligible to participate
in the Defined Benefit Deferred Compensation Plan.
(4) Messrs. Frazier and McIntyre began serving as Directors of the Fund on
April 19, 1995.
16
<PAGE>
(5) Total as a percentage of the Fund's net assets as of July 31, 1996.
(6) Total as a percentage of the net assets of the INVESCO Fund Complex as
of December 31, 1995.
The officers of the Fund, all of whom are officers and employees of, and
paid by, IFG, are responsible for the day-to-day administration of the Fund.
The investment adviser for the Fund has the primary responsibility for making
investment decisions on behalf of that Fund. These investment decisions are
reviewed by the IFG investment committee.
All of the officers and Directors of the Fund hold comparable positions with
each of the IFG-Distributed Funds. In addition, all of the Directors of the
Fund are also directors of INVESCO Advisor Funds, Inc. (formerly known as The
EBI Funds, Inc.); and, with the exception of Mr. Hesser, trustees of INVESCO
Treasurer's Series Trust.
VOTE REQUIRED
The Directors must be elected by a plurality of the votes present at the
Meeting in person or by proxy and entitled to vote, provided a quorum is pres-
ent.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE FUND'S SHAREHOLDERS VOTE TO ELECT
ALL OF THE NOMINEES LISTED ABOVE.
PROPOSAL 3: RATIFICATION OR REJECTION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Directors of the Fund, including a majority of its Independent Direc-
tors, have selected Price Waterhouse LLP to continue to serve as independent
accountants of the Fund for the fiscal year ending July 31, 1997, subject to
ratification by the Fund's shareholders. This firm has no direct financial in-
terest or material indirect financial interest in the Fund. Representatives of
this firm are not expected to attend the Meeting, but have been given the op-
portunity to make a statement if they so desire, and will be available should
any matter arise requiring their presence.
The following summarizes Price Waterhouse LLP's audit services for the fis-
cal year ended July 31, 1996: audit of annual financial statements; prepara-
tion of the Fund's federal and state income tax returns; preparation of the
Fund's federal excise tax return; consultation with the Fund's audit commit-
tee; and routine consultation on financial accounting and reporting matters.
The Board authorized all services performed by Price Waterhouse LLP on be-
half of the Fund. In addition, the Board annually reviews the scope of serv-
ices to be provided by Price Waterhouse LLP and considers the effect, if any,
that performance of any non-audit services might have on audit independence.
An audit committee, consisting of four Independent Directors, meets periodi-
cally with the Fund's independent accountants to review accounting and report-
ing requirements.
VOTE REQUIRED
The ratification of the selection of the independent accountants must be ap-
proved by a majority of the shares present at the Meeting in person or by
proxy and entitled to vote, provided a quorum is present.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE FUND'S SHAREHOLDERS VOTE IN FAVOR
OF PROPOSAL 3.
17
<PAGE>
OTHER BUSINESS
The management of the Fund has no business to bring before the Meeting other
than the matters described above. Should any other business be presented at
the Meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
SHAREHOLDER PROPOSALS
The Fund does not hold annual meetings of shareholders. Shareholders wishing
to submit proposals for inclusion in a proxy statement and form of proxy for a
subsequent shareholders' meeting should send their written proposals to the
Secretary of the Fund, 7800 East Union Avenue, Denver, Colorado 80237. The
Fund has not received any shareholder proposals to be presented at this Meet-
ing.
By Order of the Board of Directors,
/s/ Glen A. Payne
Glen A. Payne
Secretary
December 26, 1996
18
<PAGE>
EXHIBIT A.1.
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made this 28th day of February, 1997, in Denver, Colorado,
by and between INVESCO FUNDS GROUP, INC. (the "Adviser"), a Delaware corpora-
tion, and INVESCO Diversified Funds, Inc., a Maryland corporation (the
"Fund").
WITNESSETH:
WHEREAS, the Fund is a corporation organized under the laws of the State of
Maryland; and
WHEREAS, the Fund is registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), as a diversified, open-end management
investment company and has one class of shares (the "Shares"), which is di-
vided into additional series, each representing an interest in a separate
portfolio of investments, with the first such series being designated as the
INVESCO Small Company Fund (the "Portfolio"); and
WHEREAS, the Fund desires that the Adviser manage its investment operations
and the Adviser desires to manage said operations;
NOW, THEREFORE, in consideration of these premises and of the mutual cove-
nants and agreements hereinafter contained, the parties hereto agree as fol-
lows:
1. Investment Management Services. The Adviser hereby agrees to manage the
investment operations of the Fund and its Portfolio, subject to the terms of
this Agreement and to the supervision of the Fund's directors (the "Direc-
tors"). The Adviser agrees to perform, or arrange for the performance of, the
following specific services for the Fund:
(a) to manage the investment and reinvestment of all the assets, now or
hereafter acquired, of the Fund and the Portfolio of the Fund;
(b) to maintain a continuous investment program for the Fund and each
Portfolio of the Fund, consistent with (i) the Fund's and Portfolio's in-
vestment policies as set forth in the Fund's Articles of Incorporation, By-
laws, and Registration Statement, as from time to time amended, under the
Investment Company Act of 1940, as amended (the "1940 Act"), and in any pro-
spectus and/or statement of additional information of the Fund or any Port-
folio of the Fund, as from time to time amended and in use under the Securi-
ties Act of 1933, as amended, and (ii) the Fund's status as a regulated in-
vestment company under the Internal Revenue Code of 1986, as amended;
(c) to determine what securities are to be purchased or sold for the Fund
and the Portfolio, unless otherwise directed by the Directors of the Fund,
and to execute transactions accordingly;
(d) to provide to the Fund and the Portfolio of the Fund the benefit of
all of the investment analyses and research, the reviews of current economic
conditions and trends, and the consideration of long-range investment policy
now or hereafter generally available to investment advisory customers of the
Adviser;
A.1.-1
<PAGE>
(e) to determine what portion of the Fund and each Portfolio of the Fund
should be invested in common stocks, preferred stocks, Government obliga-
tions, commercial paper, certificates of deposit, bankers' acceptances,
variable amount notes, corporate debt obligations, and any other authorized
securities;
(f) to make recommendations as to the manner in which voting rights,
rights to consent to Fund and/or Portfolio action and any other rights per-
taining to the Fund's portfolio securities shall be exercised; and
(g) to calculate the net asset value of the Fund and each Portfolio, as
applicable, as required by the 1940 Act, subject to such procedures as may
be established from time to time by the Fund's Directors, based upon the in-
formation provided to the Adviser by the Fund or by the custodian, co-custo-
dian or sub-custodian of the Fund's or any of the Portfolio's assets (the
"Custodian") or such other source as designated by the Directors from time
to time.
With respect to execution of transactions for the Fund and for the Portfo-
lio, the Adviser shall place, or arrange for the placement of, all orders for
the purchase or sale of portfolio securities with brokers or dealers selected
by the Adviser. In connection with the selection of such brokers or dealers
and the placing of such orders, the Adviser is directed at all times to obtain
for the Fund and the Portfolio the most favorable execution and price; after
fulfilling this primary requirement of obtaining the most favorable execution
and price, the Adviser is hereby expressly authorized to consider as a second-
ary factor in selecting brokers or dealers with which such orders may be
placed whether such firms furnish statistical, research and other information
or services to the Adviser. Receipt by the Adviser of any such statistical or
other information and services should not be deemed to give rise to any re-
quirement for adjustment of the advisory fee payable pursuant to paragraph 4
hereof. The Adviser may follow a policy of considering sales of shares of the
Fund as a factor in the selection of broker/dealers to execute portfolio
transactions, subject to the requirements of best execution discussed above.
The Adviser shall for all purposes herein provided be deemed to be an inde-
pendent contractor.
2. Allocation of Costs and Expenses. The Adviser shall reimburse the Fund
monthly for any salaries paid by the Fund to officers, Directors, and full-time
employees of the Fund who also are officers, general partners or employ-ees of
the Adviser or its affiliates. Except for such sub-accounting, record-keeping,
and administrative services which are to be provided by the Adviser to the Fund
under the Administrative Services Agreement between the Fund and the Adviser
dated April 30, 1993, which was approved on April 21, 1993, by the Fund's board
of directors, including all of the independent directors, at the Fund's request
the Adviser shall also furnish to the Fund, at the expense of the Adviser, such
competent executive, statistical, administrative, internal accounting and
clerical services as may be required in the judgment of the Di-rectors of the
Fund. These services will include, among other things, the maintenance (but not
preparation) of the Fund's accounts and records, and the preparation (apart from
legal and accounting costs) of all requisite corporate documents such as tax
returns and reports to the Securities and Exchange Commission and Fund
shareholders. The Adviser also will furnish, at the Adviser's expense, such
office space, equipment and facilities as may be reasonably requested by the
Fund from time to time.
Except to the extent expressly assumed by the Adviser herein and except to
the extent required by law to be paid by the Adviser, the Fund shall pay all
costs and expenses in connection with the operations and organization of the
Fund. Without limiting the generality of the foregoing, such costs and ex-
penses payable by the Fund include the following:
(a) all brokers' commissions, issue and transfer taxes, and other costs
chargeable to the Fund and any Portfolio in connection with securities
transactions to which the Fund or any Portfolio is a party or in connection
with securities owned by the Fund or any Portfolio;
A.1.-2
<PAGE>
(b) the fees, charges and expenses of any independent public accountants,
custodian, depository, dividend disbursing agent, dividend reinvestment
agent, transfer agent, registrar, independent pricing services and legal
counsel for the Fund or for any Portfolio;
(c) the interest on indebtedness, if any, incurred by the Fund or any
Portfolio;
(d) the taxes, including franchise, income, issue, transfer, business li-
cense, and other corporate fees payable by the Fund or any Portfolio to fed-
eral, state, county, city, or other governmental agents;
(e) the fees and expenses involved in maintaining the registration and
qualification of the Fund and of its shares under laws administered by the
Securities and Exchange Commission or under other applicable regulatory re-
quirements, including the preparation and printing of prospectuses and
statements of additional information;
(f) the compensation and expenses of its Directors;
(g) the costs of printing and distributing reports, notices of sharehold-
ers' meetings, proxy statements, dividend notices, prospectuses, statements
of additional information and other communications to the Fund's sharehold-
ers, as well as all expenses of shareholders' meetings and Directors' meet-
ings;
(h) all costs, fees or other expenses arising in connection with the or-
ganization and filing of the Fund's Articles of Incorporation, including its
initial registration and qualification under the 1940 Act and under the Se-
curities Act of 1933, as amended, the initial determination of its tax sta-
tus and any rulings obtained for this purpose, the initial registration and
qualification of its securities under the laws of any state and the approval
of the Fund's operations by any other federal or state authority;
(i) the expenses of repurchasing and redeeming shares of the Fund;
(j) insurance premiums;
(k) the costs of designing, printing, and issuing certificates represent-
ing shares of beneficial interest of the Fund;
(l) extraordinary expenses, including fees and disbursements of Fund coun-
sel, in connection with litigation by or against the Fund or any Portfolio;
(m) premiums for the fidelity bond maintained by the Fund pursuant to Sec-
tion 17(g) of the 1940 Act and rules promulgated thereunder (except for such
premiums as may be allocated to the Adviser as an insured thereunder); and
(n) association and institute dues.
3. Use of Affiliated Companies. In connection with the rendering of the
services required to be provided by the Adviser under this Agreement, the Ad-
viser may, to the extent it deems appropriate and subject to compliance with
the requirements of applicable laws and regulations, and upon receipt of writ-
ten approval of the Fund, make use of its affiliated companies and their em-
ployees; provided that the Adviser shall supervise and remain fully responsi-
ble for all such services in accordance with and to the extent provided by
this Agreement and that all costs and expenses associated with the providing
of services by any such companies or employees and required by this Agreement
to be borne by the Adviser shall be borne by the Adviser or its affiliated
companies.
A.1.-3
<PAGE>
4. Compensation of the Adviser. For the services to be rendered and the
charges and expenses to be assumed by the Adviser hereunder, the Fund shall
pay to the Adviser an advisory fee which will be computed on a daily basis and
paid as of the last day of each month, using for each daily calculation the
most recently determined net asset value of the Portfolio of the Fund, as de-
termined by valuations made in accordance with the Fund's procedure for calcu-
lating the Portfolio's net asset value as described in the Fund's Prospectus
and/or Statement of Additional Information. On an annual basis the advisory
fee applicable to the Portfolio shall be computed at the annual rate of 0.75%
of the Portfolio's average net assets.
During any period when the determination of the Portfolio's net asset value
is suspended by the Directors of the Fund, the net asset value of a share of
the Portfolio as of the last business day prior to such suspension shall, for
the purpose of this paragraph 4, be deemed to be the net asset value at the
close of each succeeding business day until it is again determined. However,
no such fee shall be paid to the Adviser with respect to any assets of the
Fund or any Portfolio thereof which may be invested in any other investment
company for which the Adviser serves as investment adviser. The fee provided
for hereunder shall be prorated in any month in which this Agreement is not in
effect for the entire month.
If, in any given year, the sum of the Portfolio's expenses exceeds the most
restrictive state imposed annual expense limitation, the Adviser will be re-
quired to reimburse the Portfolio for such excess expenses promptly. Interest,
taxes and extraordinary items such as litigation costs are not deemed expenses
for purposes of this paragraph and shall be borne by the Fund or Portfolio in
any event. Expenditures, including costs incurred in connection with the pur-
chase or sale of portfolio securities, which are capitalized in accordance
with generally accepted accounting principles applicable to investment compa-
nies, are accounted for as capital items and shall not be deemed to be ex-
penses for purposes of this paragraph.
5. Avoidance of Inconsistent Positions and Compliance with Laws. In connec-
tion with purchases or sales of securities for the investment portfolio of the
Fund or any Portfolio, neither the Adviser nor its officers or employees will
act as a principal or agent for any party other than the Fund or Portfolio or
receive any commissions. The Adviser will comply with all applicable laws in
acting hereunder including, without limitation, the 1940 Act; the Investment
Advisers Act of 1940, as amended; and all rules and regulations duly promul-
gated under the foregoing.
6. Duration and Termination. This Agreement shall become effective as of the
date it is approved by a majority of the outstanding voting securities of the
Portfolio of the Fund, and unless sooner terminated as hereinafter provided,
shall remain in force for an initial term ending two years from the date of
execution, and from year to year thereafter, but only as long as such continu-
ance is specifically approved at least annually (i) by a vote of a majority of
the outstanding voting securities of the Portfolio of the Fund or by the Di-
rectors of the Fund, and (ii) by a majority of the Directors of the Fund who
are not interested persons of the Adviser or the Fund by votes cast in person
at a meeting called for the purpose of voting on such approval.
This Agreement may, on 60 days' prior written notice, be terminated without
the payment of any penalty, by the Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Fund or Portfolio, as the
case may be, or by the Adviser. This Agreement shall immediately terminate in
the event of its assignment, unless an order is issued by the Securities and
Exchange Commission conditionally or unconditionally exempting such assignment
from the provisions of Section 15(a) of the 1940 Act, in which event this
Agreement shall remain in full force and effect subject to the terms and pro-
visions of said order. In interpreting the provisions of this paragraph 6, the
definitions contained in Section 2(a) of the 1940 Act and the applicable rules
under the 1940 Act
A.1.-4
<PAGE>
(particularly the definitions of "interested person," "assignment" and "vote
of a majority of the outstanding voting securities") shall be applied.
The Adviser agrees to furnish to the Directors of the Fund such information
on an annual basis as may reasonably be necessary to evaluate the terms of
this Agreement.
Termination of this Agreement shall not affect the right of the Adviser to
receive payments on any unpaid balance of the compensation described in para-
graph 4 earned prior to such termination.
7. Non-Exclusive Services. The Adviser shall, during the term of this Agree-
ment, be entitled to render investment advisory services to others, including,
without limitation, other investment companies with similar objectives to
those of the Fund or any Portfolio of the Fund. The Adviser may, when it deems
such to be advisable, aggregate orders for its other customers together with
any securities of the same type to be sold or purchased for the Fund or any
Portfolio in order to obtain best execution and lower brokerage commissions.
In such event, the Adviser shall allocate the shares so purchased or sold, as
well as the expenses incurred in the transaction, in the manner it considers
to be most equitable and consistent with its fiduciary obligations to the Fund
or any Portfolio and the Adviser's other customers.
8. Liability. The Adviser shall have no liability to the Fund or any Portfo-
lio or to the Fund's shareholders or creditors, for any error of judgment,
mistake of law, or for any loss arising out of any investment, nor for any
other act or omission, in the performance of its obligations to the Fund or
any Portfolio not involving willful misfeasance, bad faith, gross negligence
or reckless disregard of its obligations and duties hereunder.
9. Miscellaneous Provisions.
Notice. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as
such other party may designate for the receipt of such notice.
Amendments Hereof. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed
by the Fund and the Adviser, and no material amendment of this Agreement shall
be effective unless approved by (1) the vote of a majority of the Directors of
the Fund, including a majority of the Directors who are not parties to this
Agreement or interested persons of any such party cast in person at a meeting
called for the purpose of voting on such amendment, and (2) the vote of a ma-
jority of the outstanding voting securities of the Portfolio; provided, howev-
er, that this paragraph shall not prevent any immaterial amendment(s) to this
Agreement, which amendment(s) may be made without shareholder approval, if
such amendment(s) are made with the approval of (1) the Directors and (2) a
majority of the Directors of the Fund who are not interested persons of the
Adviser or the Fund.
Severability. Each provision of this Agreement is intended to be severable.
If any provision of this Agreement shall be held illegal or made invalid by a
court decision, statute, rule or otherwise, such illegality or invalidity
shall not affect the validity or enforceability of the remainder of this
Agreement.
Headings. The headings in this Agreement are inserted for convenience and
identification only and are in no way intended to describe, interpret, define
or limit the size, extent or intent of this Agreement or any provision hereof.
Applicable Law. This Agreement shall be construed in accordance with the
laws of the State of Colorado and the applicable provisions of the 1940 Act.
To the extent that the applicable laws of the State of Colorado, or any of the
provisions herein, conflict with applicable provisions of the 1940 Act, the
latter shall control.
A.1.-5
<PAGE>
IN WITNESS WHEREOF, the Adviser and the Fund each has caused this Agreement
to be duly executed on its behalf by an officer thereunto duly authorized, the
day and year first above written.
INVESCO DIVERSIFIED FUNDS, INC.
By: ________________________________
President
ATTEST:
____________________________________
Secretary
INVESCO FUNDS GROUP, INC.
By: ________________________________
President
ATTEST:
____________________________________
Secretary
A.1.-6
<PAGE>
EXHIBIT A.2.
SUB-ADVISORY AGREEMENT
AGREEMENT made this 28th day of February, 1997, by and between INVESCO Funds
Group, Inc. ("INVESCO"), a Delaware corporation, and INVESCO MANAGEMENT & RE-
SEARCH, INC., a Massachusetts corporation ("the Sub-Adviser").
WITNESSETH:
WHEREAS, INVESCO DIVERSIFIED FUNDS, INC. (the "Company") is engaged in busi-
ness as a diversified, open-end management investment company registered under
the Investment Company Act of 1940, as amended (hereinafter referred to as the
"Investment Company Act") and has one class of shares (the "Shares"), which
may be divided into additional series, each representing an interest in a sep-
arate portfolio of investments, with the first such series being designated
the INVESCO Small Company Fund (the "Fund"); and
WHEREAS, INVESCO and the Sub-Adviser are engaged in rendering investment ad-
visory services and are registered as investment advisers under the Investment
Advisers Act of 1940; and
WHEREAS, INVESCO has entered into an Investment Advisory Agreement with the
Company (the "INVESCO Investment Advisory Agreement"), pursuant to which
INVESCO is required to provide investment advisory services to the Company,
and, upon receipt of written approval of the Company, is authorized to retain
companies which are affiliated with INVESCO to provide such services; and
WHEREAS, the Sub-Adviser is willing to provide investment advisory services
to the Company on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants hereinaf-
ter contained, INVESCO and the Sub-Adviser hereby agree as follows:
ARTICLE I
DUTIES OF THE SUB-ADVISER
INVESCO hereby employs the Sub-Adviser to act as investment adviser to the
Company and to furnish the investment advisory services described below, sub-
ject to the broad supervision of INVESCO and Board of Directors of the Compa-
ny, for the period and on the terms and conditions set forth in this Agree-
ment. The Sub-Adviser hereby accepts such assignment and agrees during such
period, at its own expense, to render such services and to assume the obliga-
tions herein set forth for the compensation provided for herein. The Sub-Ad-
viser shall for all purposes herein be deemed to be an independent contractor
and, unless otherwise expressly provided or authorized herein, shall have no
authority to act for or represent the Company in any way or otherwise be
deemed an agent of the Company.
The Sub-Adviser hereby agrees to manage the investment operations of the
Fund, subject to the supervision of the Company's directors (the "Directors")
and INVESCO. Specifically, the Sub-Adviser agrees to perform the following
services:
(a) to manage the investment and reinvestment of all the assets, now or
hereafter acquired, of the Fund, and to execute all purchases and sales of
portfolio securities;
A.2.-1
<PAGE>
(b) to maintain a continuous investment program for the Fund, consistent
with (i) the Fund's investment policies as set forth in the Company's Arti-
cles of Incorporation, Bylaws, and Registration Statement, as from time to
time amended, under the Investment Company Act of 1940, as amended (the
"1940 Act"), and in any prospectus and/or statement of additional informa-
tion of the Fund, as from time to time amended and in use under the Securi-
ties Act of 1933, as amended, and (ii) the Company's status as a regulated
investment company under the Internal Revenue Code of 1986, as amended;
(c) to determine what securities are to be purchased or sold for the Fund,
unless otherwise directed by the Directors of the Company or INVESCO, and to
execute transactions accordingly;
(d) to provide to the Fund the benefit of all of the investment analysis
and research, the reviews of current economic conditions and trends, and the
consideration of long-range investment policy now or hereafter generally
available to investment advisory customers of the Sub-Adviser;
(e) to determine what portion of the Fund should be invested in the vari-
ous types of securities authorized for purchase by the Fund; and
(f) to make recommendations as to the manner in which voting rights,
rights to consent to Fund action and any other rights pertaining to the
Fund's portfolio securities shall be exercised.
With respect to execution of transactions for the Fund, the Sub-Adviser is
authorized to employ such brokers or dealers as may, in the Sub-Adviser's best
judgment, implement the policy of the Fund to obtain prompt and reliable
execution at the most favorable price obtainable. In assigning an execution or
negotiating the commission to be paid therefor, the Sub-Adviser is authorized
to consider the full range and quality of a broker's services which benefit
the Fund, including but not limited to research and analytical capabilities,
reliability of performance, and financial soundness and responsibility.
Research services prepared and furnished by brokers through which the Sub-
Adviser effects securities transactions on behalf of the Fund may be used by
the Sub-Adviser in servicing all of its accounts, and not all such services
may be used by the Sub-Adviser in connection with the Fund. In the selection
of a broker or dealer for execution of any negotiated transaction, the Sub-
Adviser shall have no duty or obligation to seek advance competitive bidding
for the most favorable negotiated commission rate for such transaction, or to
select any broker solely on the basis of its purported or "posted" commission
rate for such transaction, provided, however, that the Sub-Adviser shall
consider such "posted" commission rates, if any, together with any other
information available at the time as to the level of commissions known to be
charged on comparable transactions by other qualified brokerage firms, as well
as all other relevant factors and circumstances, including the size of any
contemporaneous market in such securities, the importance to the Fund of
speed, efficiency, and confidentiality of execution, the execution
capabilities required by the circumstances of the particular transactions, and
the apparent knowledge or familiarity with sources from or to whom such
securities may be purchased or sold. Where the commission rate reflects
services, reliability and other relevant factors in addition to the cost of
execution, the Sub-Adviser shall have the burden of demonstrating that such
expenditures were bona fide and for the benefit of the Fund.
A.2.-2
<PAGE>
ARTICLE II
ALLOCATION OF CHARGES AND EXPENSES
The Sub-Adviser assumes and shall pay for maintaining the staff and person-
nel necessary to perform its obligations under this Agreement, and shall, at
its own expense, provide the office space, equipment and facilities necessary
to perform its obligations under this Agreement. Except to the extent ex-
pressly assumed by the Sub-Adviser herein and except to the extent required by
law to be paid by the Sub-Adviser, INVESCO and/or the Company shall pay all
costs and expenses in connection with the operations of the Fund.
ARTICLE III
COMPENSATION OF THE SUB-ADVISER
For the services rendered, facilities furnished, and expenses assumed by the
Sub-Adviser, INVESCO shall pay to the Sub-Adviser a fee, computed daily and
paid as of the last day of each month, using for each daily calculation the
most recently determined net asset value of the Fund, as determined by a valu-
ation made in accordance with the Fund's procedures for calculating its net
asset value as described in the Fund's Prospectus and/or Statement of Addi-
tional Information. The advisory fee to the Sub-Adviser shall be computed at
the annual rate of 0.375% of the Fund's average net assets. During any period
when the determination of the Fund's net asset value is suspended by the Di-
rectors of the Fund, the net asset value of a share of the Fund as of the last
business day prior to such suspension shall, for the purpose of this Article
III, be deemed to be the net asset value at the close of each succeeding busi-
ness day until it is again determined. However, no such fee shall be paid to
the Sub-Adviser with respect to any assets of the Fund which may be invested
in any other investment company for which the Sub-Adviser serves as investment
adviser or sub-adviser. The fee provided for hereunder shall be prorated in
any month in which this Agreement is not in effect for the entire month. The
Sub-Adviser shall be entitled to receive fees hereunder only for such periods
as the INVESCO Investment Advisory Agreement remains in effect.
ARTICLE IV
ACTIVITIES OF THE SUB-ADVISER
The services of the Sub-Adviser to the Fund are not to be deemed to be ex-
clusive, the Sub-Adviser and any person controlled by or under common control
with the Sub-Adviser (for purposes of this Article IV referred to as "affili-
ates") being free to render services to others. It is understood that direc-
tors, officers, employees and shareholders of the Fund are or may become in-
terested in the Sub-Adviser and its affiliates, as directors, officers, em-
ployees and shareholders or otherwise and that directors, officers, employees
and shareholders of the Sub-Adviser, INVESCO and their affiliates are or may
become interested in the Fund as directors, officers and employees.
ARTICLE V
AVOIDANCE OF INCONSISTENT POSITIONS AND COMPLIANCE WITH APPLICABLE LAWS
In connection with purchases or sales of securities for the investment port-
folio of the Fund, neither the Sub-Adviser nor any of its directors, officers
or employees will act as a principal or agent for any party other than the
Fund or receive any commissions. The Sub-Adviser will comply with all applica-
ble laws in acting hereunder including, without limitation, the 1940 Act; the
Investment Advisers Act of 1940, as amended; and all rules and regulations
duly promulgated under the foregoing.
A.2.-3
<PAGE>
ARTICLE VI
DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall become effective as of the date it is approved by a ma-
jority of the outstanding voting securities of the Fund, and shall remain in
force for an initial term of two years from the date of execution, and from
year to year thereafter until its termination in accordance with this Article
VI, but only so long as such continuance is specifically approved at least an-
nually by (i) the Directors of the Fund, or by the vote of a majority of the
outstanding voting securities of the Fund, and (ii) a majority of those Direc-
tors who are not parties to this Agreement or interested persons of any such
party cast in person at a meeting called for the purpose of voting on such ap-
proval.
This Agreement may be terminated at any time, without the payment of any
penalty, by INVESCO, the Fund by vote of the Directors of the Company, or by
vote of a majority of the outstanding voting securities of the Fund, or by the
Sub-Adviser. A termination by INVESCO or the Sub-Adviser shall require sixty
days' written notice to the other party and to the Company, and a termination
by the Company shall require such notice to each of the parties. This Agree-
ment shall automatically terminate in the event of its assignment to the ex-
tent required by the Investment Company Act of 1940 and the Rules thereunder.
The Sub-Adviser agrees to furnish to the Directors of the Company such in-
formation on an annual basis as may reasonably be necessary to evaluate the
terms of this Agreement.
Termination of this Agreement shall not affect the right of the Sub-Adviser
to receive payments on any unpaid balance of the compensation described in Ar-
ticle III hereof earned prior to such termination.
ARTICLE VII
AMENDMENTS OF THIS AGREEMENT
No provision of this Agreement may be orally changed or discharged, but may
only be modified by an instrument in writing signed by the Sub-Adviser and
INVESCO. In addition, no amendment to this Agreement shall be effective unless
approved by (1) the vote of a majority of the Directors of the Company, in-
cluding a majority of the Directors who are not parties to this Agreement or
interested persons of any such party cast in person at a meeting called for
the purpose of voting on such amendment and (2) the vote of a majority of the
outstanding voting securities of the Fund (other than an amendment which can
be effective without shareholder approval under applicable law).
ARTICLE VIII
DEFINITIONS OF CERTAIN TERMS
In interpreting the provisions of this Agreement, the terms "vote of a ma-
jority of the outstanding voting securities," "assignments," "affiliated per-
son" and "interested person," when used in this Agreement, shall have the re-
spective meanings specified in the Investment Company Act and the Rules and
Regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act.
A.2.-4
<PAGE>
ARTICLE IX
GOVERNING LAW
This Agreement shall be construed in accordance with the laws of the State
of Colorado and the applicable provisions of the Investment Company Act. To
the extent that the applicable laws of the State of Colorado, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
ARTICLE X
MISCELLANEOUS
Notice. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as
such other party may designate for the receipt of such notice.
Severability. Each provision of this Agreement is intended to be severable.
If any provision of this Agreement shall be held illegal or made invalid by a
court decision, statute, rule or otherwise, such illegality or invalidity
shall not affect the validity or enforceability of the remainder of this
Agreement.
Headings. The headings in this Agreement are inserted for convenience and
identification only and are in no way intended to describe, interpret, define
or limit the size, extent or intent of this Agreement or any provision hereof.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
INVESCO FUNDS GROUP, INC.
By: __________________________________
ATTEST: President
____________________________________
Secretary
INVESCO MANAGEMENT & RESEARCH, INC.
By: ________________________________
ATTEST: President
____________________________________
Secretary
A.2.-5
<PAGE>
EXHIBIT B
FUNDS ADVISED BY THE ADVISER OR THE SUB-ADVISERS WITH SIMILAR INVESTMENT
OBJECTIVES AND STRATEGIES TO THOSE OF THE COMPANY; GROWTH & VALUE FUNDS
<TABLE>
<CAPTION>
GROWTH & 1940 ACT ADVISER SUB-ADVISER ADVISORY FEE SUB-ADVISORY NET ASSETS (AT
VALUE OBJECTIVE RATE (BASED ON FEE RATE OCTOBER 31,
FUNDS AVERAGE NET (BASED ON 1996)
ASSETS) AVERAGE NET
ASSETS)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
VALUE EQUITY Capital INVESCO INVESCO .75% of the first .20% of the first $221,736,052
FUND Appreciation Funds Group, Capital $500 million; $500 million;
and Income Inc. Management, .65% of the next .17% of the next
Inc. $500 million; $500 million;
.50% over .13% over
$1 billion $1 billion
- ----------------------------------------------------------------------------------------------------------
GROWTH FUND Long-Term INVESCO INVESCO .60% of the first .25% of the first $650,140,716
Capital Funds Group, Trust $350 million; $200 million;
Growth; Inc. Company .55% of the next .20% over
Current $350 million; $200 million
Income .50% over
Secondary $700 million
- ----------------------------------------------------------------------------------------------------------
DYNAMICS Capital INVESCO INVESCO .60% of the first .25% of the first $836,458,920
FUND Appreciation Funds Group, Trust $350 million; $200 million;
Inc. Company .55% of the next .20% over
$350 million; $200 million
.50% over
$700 million
- ----------------------------------------------------------------------------------------------------------
EMERGING Long-Term INVESCO INVESCO .75% of the first .25% of the first $275,668,167
GROWTH FUND Capital Funds Group, Trust $350 million; $200 million;
Growth Inc. Company .65% of the next .20% over
$350 million; $200 million
.55% over
$700 million
- ----------------------------------------------------------------------------------------------------------
SMALL Long-Term INVESCO INVESCO .75% .375% $47,292,558
COMPANY Capital Funds Group, Management
FUND* Growth Inc. & Research,
Inc.
- ----------------------------------------------------------------------------------------------------------
EQUITY Capital INVESCO INVESCO .75% .20% $134,188,186
PORTFOLIO Appreciation Services, Inc. Management
and Income & Research,
Inc.
</TABLE>
B-1
<PAGE>
EXHIBIT B
FUNDS ADVISED BY THE ADVISER OR THE SUB-ADVISERS WITH SIMILAR INVESTMENT
OBJECTIVES AND STRATEGIES TO THOSE OF THE COMPANY; GROWTH & VALUE FUNDS
<TABLE>
<CAPTION>
GROWTH & 1940 ACT ADVISER SUB- ADVISORY FEE SUB-ADVISORY NET ASSETS (AT
VALUE OBJECTIVE ADVISER RATE (BASED ON FEE RATE OCTOBER 31,
FUNDS AVERAGE NET (BASED ON 1996)
ASSETS) AVERAGE NET
ASSETS)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JOHN HANCOCK Aggressive John Hancock INVESCO .80% of the first .55% of the first $9,621,404
VARIABLE SERIES Growth Mutual Life Management $100 million; $100 million;
TRUST -- SMALL Insurance & Research, .75% of the next .50% of the next
CAP VALUE Company Inc. $100 million; $100 million;
FUND .65% over .40% over
$200 million $200 million
- ---------------------------------------------------------------------------------------------------------
MAXIM Long-Term Great West INVESCO 1% .55% of the first $2,997,147
INVESCO Capital Life Trust $25 million;
SMALL-CAP Growth Assurance Company .50% of the next
GROWTH Company $50 million;
PORTFOLIO .40% of the next
$25 million;
.35% over
$100 million
</TABLE>
* Indicates whether fee has been waived or absorbed during the Fund's past
fiscal year.
B-2
<PAGE>
TO BE SURE YOU ARE REPRESENTED, PLEASE SIGN, DATE AND RETURN
PROMPTLY.
INVESCO DIVERSIFIED FUNDS, INC.
INVESCO SMALL COMPANY FUND
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
JANUARY 31, 1997
The undersigned hereby appoints Fred A. Deering, Dan J. Hesser and Glen A.
Payne, and each of them, proxy for the undersigned, with the power of
substitution, to vote with the same force and effect as the undersigned at the
Special Meeting of the Shareholders of INVESCO Diversified Funds, Inc. --
INVESCO Small Company Fund (the "Fund"), to be held at the Denver Marriott
Southeast, 6363 East Hampden Avenue, Denver, Colorado 80222, on Friday, January
31, 1997, at 10:00 a.m. (Mountain Standard Time) and at any adjournment thereof,
upon the matters set forth below, all in accordance with and as more fully
described in the Notice of Special Meeting and Proxy Statement, dated December
26, 1996, receipt of which is hereby acknowledged.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS, WHICH RECOMMENDS A VOTE
"FOR":
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS [X]
1.A. Proposal to approve a new investment advisory agreement between the
Fund and INVESCO Funds Group, Inc. ("IFG"), such agreement to take
effect only if the proposed merger of A I M Management Group, Inc. into
a wholly-owned U.S. subsidiary of INVESCO PLC is consummated.
Vote on Proposal
For [ ] Against [ ] Abstain [ ]
1.B. Proposal to approve a new sub-advisory agreement between IFG and INVESCO
Management & Research, Inc., such agreement to take effect only if the
proposed merger of A I M Management Group, Inc. into a wholly-owned U.S.
subsidiary of INVESCO PLC is consummated.
Vote on Proposal
For [ ] Against [ ] Abstain [ ]
2. Proposal to elect eleven directors of the Company: Charles W. Brady, Dan
J. Hesser, Fred A. Deering, Victor L. Andrews, Bob R. Baker, Lawrence H.
Budner, Daniel D. Chabris, A.D. Frazier, Jr., Hubert L. Harris, Jr.,
Kenneth T. King and John W. McIntyre.
Vote on Directors
For All [ ] Withhold All [ ] For All Except [ ]
To withhold authority to vote, mark "For All Except" and write the
nominee's name on the line below.
-----------------------------------------------------------------
<PAGE>
3. Proposal to ratify the selection of Price Waterhouse LLP as independent
accountants for the Fund for the fiscal year ending July 31, 1997.
Vote on Proposal
For [ ] Against [ ] Abstain [ ]
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment thereof.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" PROPOSALS 1.A., 1.B., 2 and 3.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE ACCOMPANYING ENVELOPE AS
SOON AS POSSIBLE. THANK YOU.
- -----------------------------------------------------------------------------
Signature Signature Date
(Joint Owners)
Please sign exactly as name appears hereon. If stock is held in the name of
joint owners, each should sign. Attorneys-in-fact, executors, administrators,
etc., should so indicate. If shareholder is a corporation or partnership,
please sign in full corporate or partnership name by authorized person.
